After a volatile year of geopolitical tensions, economic shocks and uneven monetary policy, Colliers anticipates the process of stabilisation of the global real estate market to take hold by mid-2023.
While some countries such as the UK and U.S. have already witnessed a rapid pricing reset, this has not been universal, according to Colliers’ 2023 Global Investor Outlook report. Investors can expect big differences in how the reset plays out across sectors and markets next year, said the advisor, which earlier this week announced its expansion in Belgium with the acquisition of BelSquare.
‘Real estate markets offer a solid, long-term investment and income stream once pricing levels are clearer. Local events and macroeconomic factors still have the potential to disrupt positive momentum. Investors should be prepared for regression before progression in markets that remain susceptible to further shocks,’ said Tony Horrell, head of Global Capital Markets. ‘We anticipate investment activity to pick up as central banks end rate hikes and greater economic certainty emerges. In the meantime, investors will remain on the lookout for bargains, with significant funds being drawn up to act.’
Rising costs
When it came down to real estate market specific themes, the cost of debt was a big concern, with 78% saying it would negatively impact their real estate strategy in 2023. A further 63% said the availability of debt was going to have a negative impact. These responses were in-line with those in other global regions - APAC and the Americas.
When looking at broader macro factors, EMEA stood out when it came to concerns over energy cost/supply: 78% of EMEA investors ranked energy supply/costs as their top concern. Other key concerns in the region were rising geopolitical tension, selected by 72% of respondents, and currency fluctuations (61%).
Liquidity and sustainability driving opportunities
Capital values will continue to be negatively impacted by the transition to higher interest rates, causing some distress in 2023, especially for non-core assets, Colliers said. There is an acceleration in opportunistic fundraising, indicating a focus on finding pockets of opportunity amidst the current reset.
More broadly, environmental, social, and governance (ESG) criteria continues to be a key factor in investor decision making. In Colliers’ previous 2022 Global Investor Outlook report only 10% of surveyed investors had a capital improvement, disposal, or acquisition strategy that incorporated ESG considerations. As of 2023, this has risen to 17%, with 45% of respondents looking to dispose of up to 20% of their existing portfolio in the next five years.
‘In response to occupier preferences, growing regulatory requirements and the rising cost of operating assets, investors are rethinking value and placing a greater emphasis on a range of ESG factors this year. There is both an expectation and greater evidence that assets with strong sustainability characteristics can command a premium and those that don’t will be heavily discounted,’ said Damian Harrington, head of Research for Global Capital Markets and EMEA. ‘It will be interesting to see just how capital is distributed across the capital stack in terms of refinancing, the retrofitting of assets, new construction, or divestitures.’
